20 High Stock Return Option Ideas

With less than 2 weeks until the next option expiration, I wanted to put together a list of buy/write option strategies on strong stocks (based on one of my methods of finding bullish stocks), that had a greater than or equal to 50% current probability of expiring in the money on July 18, 2009 (closest current option expiration), and gave decent downside protection as well as a decent return if the option expires in the money and the stock is sold at the strike price.

The list below includes: Company name (sorted alphabetically), Ticker, Strike Price (all for July options expiration), Downside Protection in % (noted by Downside %), Return on Buy/Write option strategy in % if stock gets called out at expiration (noted by Return %), Current probability in % that current option market is factoring in, that the stock meets or exceeds strike price at expiration (noted by % Probability), and if the stock is currently above the strike price known as in the money (noted by IN$).

Company	Ticker	Strike Price	Downside %	Return %	% Probability
Akamai Technologies Inc	AKAM	19	5.14	2.88	61	IN $
Amazon.Com Inc	AMZN	75	6.74	1.3	76	IN $
Apple Inc	AAPL	140	2.48	2.46	51.7	IN $
Baidu Inc Ads	BIDU	290	5.22	3.59	51.5
Celgene Corp	CELG	46	3.81	2.25	59.9	IN $
Citrix Systems Inc	CTXS	30	5.94	2.21	67.3	IN $
Cognizant Tech Sol Cl A	CTSH	25	6.95	0.9	80.1	IN $
Express Scripts Inc	ESRX	65	3.82	1.93	62.8	IN $
Fiserv Inc	FISV	45	2.11	1.91	51.6	IN $
Gilead Sciences Inc	GILD	46	2.29	2.51	50.2
Google Inc	GOOG	410	3.35	3.72	50.1
Infosys Technologies Ads	INFY	35	6.21	2.87	64.1	IN $
Joy Global Inc	JOYG	34	5.1	4.14	55.5	IN $
Juniper Networks Inc	JNPR	23	4.88	2.55	62	IN $
Life Technologies Corp	LIFE	40	3.03	2.38	55.5	IN $
O Reilly Automotive Inc	ORLY	35	7.75	1.26	77.7	IN $
Oracle Corp	ORCL	21	2.04	1.85	51.4	IN $
Research In Motion Ltd	RIMM	70	3.26	3.67	50
Ross Stores Inc	ROST	37.5	3.17	2.14	58.3	IN $
Yahoo	YHOO	15	3.27	3.34	50.7

The table above allows you to see which stocks (out of my list of 20 chosen) have the best chances at the highest possible returns ("best bang for your buck"). I use this method to choose which stocks I'll be buying to write out immediately. As a higher risk investor, from this table I am most interested in the following stocks: Yahoo, Baidu, Research in Motion, Google, and Joy Global. This is because all five of these stocks have higher than average returns (assuming they expire above the indicated strike price). A more conservative investor may be interested in choosing the stocks which yield the most downside protection and highest probability of getting assigned at option expiration.

I like using this strategy because even if I'm not called out on the Stock/ETF (at expiration), I'll still have it to write out again at my desired strike price and date again for another premium. Click here to learn more about option strategies like the ones mentioned above, option pricing, and more.

To get an idea of what the Sector ETFs are bringing for premiums I have put together a list of the most popular sector SPDR ETFs below.

Sector	Ticker	Strike Price	Downside %	Return %	% Probability
Consumer Discret	XLY	22	3.59	2.29	61.5	IN $
Consumer Staples	XLP	22	4.72	0.83	82.5	IN $
Energy	XLE	46	2.79	2.45	53.8	IN $
Financial	XLF	11	5.67	1.57	71.7	IN $
Health Care	XLV	25	3.5	0.58	76.4	IN $
Industrial	XLI	21	3.51	1.83	61.6	IN $
Materials	XLB	25	2.98	2.39	53	IN $
Technology	XLK	17	5.44	0.79	80.3	IN $
Utilities	XLU	27	2.73	1.13	62.7	IN $

As you can see these are even better for a conservative investor, as they have very high downside protection (average of 3.88% among the 9 ETFs analyzed) and a greater than two-thirds chance of expiring in the money at option expiration. However, the trade off is that the average return % (assuming the ETF is called out at expiration) is almost 40% lower than the average return for the 20 individual stocks.

For your convenience you can view printable spreadsheets of the 20 stocks analyzed in this report ranked in order from least to greatest: Return %, Downside Protection %, and % Probability of expiring in the money, here.

Disclosure: Long GOOG

Comments

[skwestorange:]

The key missing ingredient in this article to be of any use is what exactly is the option strategy you're talking about? Is buy stock, sell covered call at the money and sell naked puts at or one strike below? Or is it just Buy the stk and sell covered calls or what?

Jul 07 10:48 AM

[RHW:]

I agree. I'm not the brigtest bulb out there, but I could not figure out the strategy to be used. He did a great deat of research and analysis only to come up short on how & what to execute.

Jul 07 11:27 AM

[TCK:]

Look at the chart. The " Strike Price " is shown that is to be used for a covered call ( or Buy / Write).

This is options 101.

Seems rather straight forward to me !

Jul 07 11:47 AM

[skwestorange:]

TCK:
I must be dim like RHW. Buy/Write is used to indicate selling covered calls as well as selling covered calls and goosing it with selling naked put either at the money or one strike down. So, I think the author could have been a bit clearer by outlining the exact option strategy used. Unless I do the calculations with the exact premium used, I cannot determine which one is used.

Jul 07 12:15 PM

[dpf:]

Marco - Disregard the old-retired, arm chair generals - you made it very clear CC. I try and add a NP if I can, but your lists has made me a lot of $$. Keep up the good work!!!

Jul 07 12:45 PM